Hypersonic air travel and cut-price satellite launches will move a step closer when BAE Systems buys a stake in a UK company developing engines able to power aircraft at 2,500mph and into space.

The FTSE 100 group is set to purchase 20pc of Oxfordshire-based Reaction Engines for £20.6m, in a deal that will see the defence giant’s expertise applied to research on the privately-held company’s engine, which combines jet and rocket technology.

An atist's impression of how the new engine would look in ground tests

A working partnership will be formed allowing Reaction Engines to tap BAE’s engineering talent and resources, in an arrangement likely to speed up development of technology that could revolutionise air travel and space flight.

The potential for this engine is incredible. I feel like we’re in the same position as the people who were the first to consider putting a propeller on an internal combustion engine

Nigel Whitehead, BAE Systems

Nigel Whitehead, managing director at BAE, said: “The potential for this engine is incredible. I feel like we’re in the same position as the people who were the first to consider putting a propeller on an internal combustion engine: we understand that there are amazing possibilities but don’t fully understand what they are, as we just can’t imagine them all.

“It could be very high speed flight, low-cost launches to orbit or other fantastic achievements.”

For 20 years Reaction Engines has been developing its Synergetic Air-Breathing Rocket Engine (SABRE), which works like a normal jet engine while in the Earth’s atmosphere, sucking in air to burn with its hydrogen fuel. However, once it hits five times the speed of sound – about 2,500mph at altitude - and is close to leaving the atmosphere where there is no air, it switches to being a conventional rocket engine, burning the liquefied oxygen it carries along with its fuel.

The ability to switch modes means the system is lighter than conventional rockets, which have to carry much more oxygen for launches but are then jettisoned.

Reaction Engines has developed a heat exchanger, pictured left, which cools air going into the engine to a level where it is almost liquid before it is ignited, allowing the SABRE engine to swap modes. This device can cools hot air from more than 1,000C to -150C in less than 1/100th of a second.

Aircraft equipped with SABRE engines will be able to take off from a runway like a normal plane – making launches simpler and cheaper - before accelerating to up to 20 times the speed of sound. At this speed, travelling between Britain and Australia could take just four hours.

Mark Thomas, managing director of Reaction Engines, said that while the physics of the concept are well understood, his company has been the only one to develop components such as the heat exchanger that makes the system viable.

He added: “This investment will allow us to transition from being a research operation to a development one, working on all the key pieces of the jigsaw we need to make a working engine.”

BAE's backing means the project, which is in the final stages of winning a £60m government investment, should have a completed engine ready for ground testing by the end of the decade, with flight tests starting in the early 2020s.

A range of spin-off technologies are expected from the project, with the possibility of planes flying at speeds currently unimaginable.

“This technology is far reaching and we are looking at crossing a boundary in terms of where it could be going,” said Mr Whitehead

If the engine proves successful it is likely to be used for low-cost satellite launches first, with SABRE-powered passenger jets coming much later.

“It’s easier to get into space than fly to Australia because making a vehicle that is safe for passengers is more complicated by orders of magnitude,” said Mr Whitehead.